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Sky launches a mobile service in the UK in anticipation of increased competition in convergence December 2016 Heenu Nihalani and Kerem Arsal

Sky is the newest entrant to the UK mobile market, and the forthcoming launch of its ‘Sky Mobile’ service brings an alternative fixed–mobile proposition to a relatively nascent convergence market. As a mobile virtual network operator (MVNO), it will use O2’s network, and offer 12-month contracts in loose bundles to its fixed subscribers, as well as separately to non-subscribers at a higher price point. Sky reports that over 46 000 people have pre-registered for Sky Mobile, which will be launched in mid-December. This article examines Sky Mobile’s pricing and positioning in more detail, and discusses the effects that this service may have on the UK’s mobile and FMC markets. Sky is clearly targeting its mobile proposition at its current customer base

Sky is entering the market with relatively cautious pricing, without aggressive discounting, and with continued focus on premium services. It is a convincing offer for its fixed broadband subscribers, but less so for non- subscribers. The service is positioned to compete in a marketplace increasingly dominated by converged offers following BT’s acquisition of EE in August 2016.

 Pricing for Sky’s fixed customers is competitive. Prices are tiered around data allowances: GBP10 per month for 1GB, GBP15 for 3GB, and GBP20 for 5GB; each comes with unlimited voice and SMS. The pricing closely matches similar plans from Virgin Media and Vodafone, while BT’s pricing is slightly lower for its FMC bundle subscribers.

 Non-Sky customers face significantly higher prices. Non-Sky customers must pay extra for voice and text messaging services. They can either pay an additional GBP10 per month for unlimited voice and SMS, or opt for ‘pay-as-you-use’ pricing at 10p per minute and 10p per text message. Both options are relatively expensive for users, particularly those accustomed to large voice allowances.

One attractive feature of Sky’s mobile proposition is ‘Roll’, which allows subscribers to roll over unused data, and this can be pooled among up to five Sky Mobile subscribers in a household. Data rollover has already been available in the USA for some time, and Sky Mobile will be one of the earliest to introduce this to the UK market. Converged operator Virgin Media launched data rollover in November 2016, but unused data expires after a month, whereas Sky Mobile subscribers can store their unused data for 3 years. Other operators may be compelled to allow rollover soon. Sky Mobile further evolves the multi-screen experience for Sky customers

The principal aim of Sky’s mobile service is to add value to its existing customer base. The addition of mobile to its portfolio is unlikely to help Sky attract TV or broadband customers from its rivals, given its premium pricing for triple-play bundles. Figure 1 shows that Sky’s triple-play bundles at ‘basic’ and ‘advanced’ price

points are more expensive than similar plans from other operators. It is still focusing on the segment that pays premium prices. Sky will want to secure this lucrative customer base ahead of anticipated moves from established telco competitors such as BT/EE and Virgin, and alternative content providers such as Amazon and Netflix.

Figure 1: Prices of triple-play bundles by type, UK, December 20161

‘Sync’ is a new feature that enhances the user experience of video on mobile devices

The main new feature that will appeal to Sky’s fixed subscribers is ‘Sync’, a service that synchronises the content available to Sky users across multiple devices. Currently, Sky+ customers can access on-demand, live and catch-up TV using the Sky Go app, but not the content that they have recorded on their own box. Sync allows them to either stream this content or to download it for offline viewing. Although many of these capabilities are already available to SkyQ customers, Sync accelerates the roll-out of the cloud-based approach across the Sky customer base.

Other players are also aiming to improve the user experience of video content across devices. For example, EE offers 3 months’ free access to BT Sport on mobile, which can be streamed via Wi-Fi and mobile data. EE does not yet support offline viewing of this premium content. Amazon Prime, however, provides the option to download videos to their devices to watch offline, and Netflix announced in November that it will introduce support for content download. Sky needs to maintain competitiveness against over-the-top (OTT) providers as well as telecoms operators.

1 All plans include line rental. Basic plans: Sky: Original TV + Sky Broadband (17Mbps) or Sky Fibre (38Mbps) (same price for broadband); BT: Starter TV + Unlimited Broadband (17Mbps); Virgin Media: Player TV+ SuperFibre 50 (50Mbps); TalkTalk: TV Plus + Fast Broadband (17Mbps). Advanced plans: Sky: Variety TV + Sky Fibre Max (76Mbps) + Sky Sports; BT: Total Entertainment + Unlimited Infinity 2 + BT Sport; Virgin Media: Full House TV + Vivid 100 (100Mbps) (BT Sport included in TV package); TalkTalk: TV Plus + Faster Fibre with speed boost (76Mbps) + Sky Sports. Given significant variations between operators’ services, we compared packages that were as close as possible but they were not always identical.

Sky’s move does not change our outlook for convergence in the UK

Prior to BT’s acquisition of EE, converged bundles were only present in the UK through occasional promotions by Virgin Media, as well as TalkTalk’s launch of its MVNO in 2012. As of 2015, only 7% of fixed broadband subscriptions in the UK were FMC bundles. By 2020, we expect fixed–mobile convergence (FMC) bundles to reach 24% of the fixed broadband base in the UK and to generate EUR5.6 billion.

Figure 2: FMC accounts and as a share of fixed broadband subscriptions, UK, 2012–2020

The launch of Sky Mobile does nothing to change our outlook. Sky’s entry to the mobile market was long anticipated and we believe that it is well-positioned to achieve rapid FMC bundle growth, given that most of its fixed broadband base are already on triple-play bundles. We also expect the adoption of converged offers to be driven by price reductions from BT and EE, and by the expansion of Virgin Media’s network. Only structural changes to the market, such as a tie-up between O2 and Sky, or between Virgin/Liberty Global and Vodafone, will further boost the role of convergence in the UK beyond our forecast.